Cash clamp by retail investors

Fund managers may still be willing to participate in capital raisings on a case-by-case basis in the volatile climate, but retail offerings will be nearly impossible to fulfil, an analyst has warned

Utilities operator DUET Group, services business Hastie Group and farm investor Prime Ag are among companies braving market turmoil to raise money from retail investors and facing an uncertain response.

Institutional investors would be hard to convince to commit funds in a market where prices are already falling below the discounted offer price of the raisings but retail investors would be even more reluctant, according to Perpetual Investments’ head of investment research, Matt Sherwood.

“Institutions in this environment might be tempted on a case-by-case basis but retail, there’s absolutely no point," he said. “Retail would be the last group that would ever contemplate an issue unless it was completely from left field, like a bank or something."

As the sharemarket fell 2.9 per cent yesterday, Hastie Group announced it was tapping shareholders for up to $10 million through a stock purchase plan at 14¢ per share. The company’s shares closed at 13¢.

“Recent ructions in markets will not be conducive to a big take-up in stock," said Eley Griffiths portfolio manager Ben Griffiths, a former shareholder in Hastie. “The market for primary and secondary capital is effectively closed now and it will be some time before investors will look to wet their beaks."

“The equity raising Hastie Group embarked upon was incredibly dilutionary but necessary under the circumstances.

DUET, which owns energy utility assets in Australia and the United States, went to market with a $277 million raising on Thursday last week, a day before the Australian sharemarket began its fall. The offer price of $1.52 per security was a discount on the stock’s $1.59 closing price on Wednesday, before the stock entered a two-day trading halt.

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The stock kept just above the offer level when it reopened for trade on Monday at $1.5297, following the oversubscribed institutional leg of the raising.

Pengana portfolio manager Rhett Kessler, who holds the stock and took part in the raising, said he was surprised the company needed as much capital as it did.

“I would prefer this business to have less debt and more equity because it is such a good business," Mr Kessler said.

“The way we think about it with good management and good businesses is if they need the capital, they should be able to go back to shareholders because it makes sense.

“It’s credit to them that in spite of a huge fall by Wall Street, they were still heavily oversubscribed."

But DUET Group is still seeking $103 million from retail investors, and it is not the only one hoping mum and dad investors will pay up.

Agricultural company PrimeAg Australia completed the $79 million institutional component of its $125 million capital raising, despite complaints from some investors that it was highly dilutive. A $46 million retail offer is open until August 17.

Shares in PrimeAg and DUET Group are dangerously close to falling below their retail offer price.